Banks see term deposits as alternative source of funds amid credit crisis
By Gabriel Chen 6 October 2008
BANKS that are hungry for cash amid the global credit crunch have unleashed a string of eye-catching promotional rates for fixed deposit accounts.
This spells good news for customers with cash parked in bank deposits.
The interest rates on offer may still be well below the inflation rate, but they are far higher than typical term deposit rates in Singapore.
And amid severe stock market volatility and a cooling property market, cash in the bank is a fairly safe investment.
Take Standard Chartered Bank (Stanchart), for example, which is dangling a rate of 1.688 per cent a year for a 100-day tenor on a deposit of at least $50,000.
If you have more money to put in the bank, you stand to reap a solid 1.958 per cent a year for a minimum deposit amount of $500,000 over two years.
This means after two years, $500,000 placed with Stanchart should return a depositer close to $520,000.
At Citibank, customers enjoy a rate of 1.65 per cent a year on a one-year time deposit of $10,000 and above if they set up a new salary credit account with the bank.
At Maybank, customers who place $25,000 to $500,000 receive a healthy interest rate of 1.9 per cent a year, for a three-year term.
Consumers even get their interest paid upfront, said Ms Helen Neo, Maybank Singapore’s head of consumer banking.
‘The upfront time deposit promotion is to reward our customers so that they can re-invest their interest earned. Customers would also appreciate receiving their interest earlier rather than upon maturity,’ she said.
Some local banks have also got into the fixed deposit promotional rates frenzy.
United Overseas Bank, for instance, is offering customers 2 per cent a year on a three-month fixed deposit, and 1.36 per cent a year on a 15-month fixed deposit when they place a minimum of $25,000 for each deposit. This dual-term fixed deposit promotion is available only for a limited period, the bank said.
Consumers point out that these rates are attractive, given that average three-month fixed deposit rates and savings rates from banks in Singapore can be as low as 0.425 per cent and around 0.25 per cent respectively.
‘I might move about $50,000 or more into one of these promotional offerings, because deposit rates are so low and inflation is eating away at my money,’ said 26-year old business owner Justin Kho.
Mr Kho, who currently has a one-month fixed deposit with DBS Bank yielding around 0.325 per cent, said he would review his options with the bank, in the light of these better returns.
Analysts say it is understandable why some of these banks are dishing out these tantalising returns.
‘The global credit crunch and interbank liquidity squeeze may have contributed to banks turning to fixed deposits as an alternative source of near-term funding,’ said OCBC Bank economist Selena Ling.
Basically, with the tighter credit conditions, banks are unwilling to lend money to each other, and this has the effect of making money harder to borrow.
This scarcity of short-term liquidity has seen the three-month Singapore Interbank Offered Rate (Sibor) jump by one percentage point in just a month to more than 2 per cent.
With banks needing fresh capital for their operational needs or to shore up their balance sheets, money roped in from fixed deposits would certainly come in handy.
‘If you’re a foreign bank, you either borrow from the interbank market or tap your own deposit base for capital, but unlike local banks, foreign banks may not have such a large deposit base,’ said Mr Joseph Chong, chief executive of financial advisory firm New Independent.
Phillip Securities Research analyst Brandon Ng suggested that DBS, for instance, has a huge retail deposit base. This could be one reason why the bank has not been launching promotional fixed deposit rates, unlike foreign banks.
Not surprisingly, DBS said it has not seen a rise in fixed deposits.
Stanchart consumer banking head Ajay Kanwal said that in the last month, the bank has seen a quick rise in deposit interest rates, mainly on account of the rise in three-month Sibor.
That, he said, is in turn influenced by two key factors: United States interest rates and domestic loans demand.
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Lure of Attractive FD Rates
Banks see term deposits as alternative source of funds amid credit crisis
By Gabriel Chen
6 October 2008
BANKS that are hungry for cash amid the global credit crunch have unleashed a string of eye-catching promotional rates for fixed deposit accounts.
This spells good news for customers with cash parked in bank deposits.
The interest rates on offer may still be well below the inflation rate, but they are far higher than typical term deposit rates in Singapore.
And amid severe stock market volatility and a cooling property market, cash in the bank is a fairly safe investment.
Take Standard Chartered Bank (Stanchart), for example, which is dangling a rate of 1.688 per cent a year for a 100-day tenor on a deposit of at least $50,000.
If you have more money to put in the bank, you stand to reap a solid 1.958 per cent a year for a minimum deposit amount of $500,000 over two years.
This means after two years, $500,000 placed with Stanchart should return a depositer close to $520,000.
At Citibank, customers enjoy a rate of 1.65 per cent a year on a one-year time deposit of $10,000 and above if they set up a new salary credit account with the bank.
At Maybank, customers who place $25,000 to $500,000 receive a healthy interest rate of 1.9 per cent a year, for a three-year term.
Consumers even get their interest paid upfront, said Ms Helen Neo, Maybank Singapore’s head of consumer banking.
‘The upfront time deposit promotion is to reward our customers so that they can re-invest their interest earned. Customers would also appreciate receiving their interest earlier rather than upon maturity,’ she said.
Some local banks have also got into the fixed deposit promotional rates frenzy.
United Overseas Bank, for instance, is offering customers 2 per cent a year on a three-month fixed deposit, and 1.36 per cent a year on a 15-month fixed deposit when they place a minimum of $25,000 for each deposit. This dual-term fixed deposit promotion is available only for a limited period, the bank said.
Consumers point out that these rates are attractive, given that average three-month fixed deposit rates and savings rates from banks in Singapore can be as low as 0.425 per cent and around 0.25 per cent respectively.
‘I might move about $50,000 or more into one of these promotional offerings, because deposit rates are so low and inflation is eating away at my money,’ said 26-year old business owner Justin Kho.
Mr Kho, who currently has a one-month fixed deposit with DBS Bank yielding around 0.325 per cent, said he would review his options with the bank, in the light of these better returns.
Analysts say it is understandable why some of these banks are dishing out these tantalising returns.
‘The global credit crunch and interbank liquidity squeeze may have contributed to banks turning to fixed deposits as an alternative source of near-term funding,’ said OCBC Bank economist Selena Ling.
Basically, with the tighter credit conditions, banks are unwilling to lend money to each other, and this has the effect of making money harder to borrow.
This scarcity of short-term liquidity has seen the three-month Singapore Interbank Offered Rate (Sibor) jump by one percentage point in just a month to more than 2 per cent.
With banks needing fresh capital for their operational needs or to shore up their balance sheets, money roped in from fixed deposits would certainly come in handy.
‘If you’re a foreign bank, you either borrow from the interbank market or tap your own deposit base for capital, but unlike local banks, foreign banks may not have such a large deposit base,’ said Mr Joseph Chong, chief executive of financial advisory firm New Independent.
Phillip Securities Research analyst Brandon Ng suggested that DBS, for instance, has a huge retail deposit base. This could be one reason why the bank has not been launching promotional fixed deposit rates, unlike foreign banks.
Not surprisingly, DBS said it has not seen a rise in fixed deposits.
Stanchart consumer banking head Ajay Kanwal said that in the last month, the bank has seen a quick rise in deposit interest rates, mainly on account of the rise in three-month Sibor.
That, he said, is in turn influenced by two key factors: United States interest rates and domestic loans demand.
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